Telstra boss warns of changes ahead

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Telstra Corp Ltd chief executive Sol Trujillo says Australia's
largest telco faces a number of challenges as its battles an
intensely competitive market, despite it posting a record annual
profit.

Mr Trujillo, who today presided over his first Telstra annual
results announcement, said although the record result was solid,
changes will have to be made.

"Clearly there are some challenges ahead of us to lift the
performance of the company and clearly along with that some changes
will have to be made," Mr Trujillo told a briefing of market
analysts.

"The flat performance of the company in the second half
indicates again the decelerating run rate that we take into
'06."

Telstra posted an eight per cent rise in 2004/05 net profit to
$4.45 billion, which was better than analysts' expectations of a
$4.3 billion outcome.

But it warned that the ongoing migration of customers to
wireless and internet products from fixed line communications -
Telstra's biggest money spinner - would impact on its 2005/06
results.

Telstra expects earnings at the pre-interest, tax, depreciation
and amortisation (EBITDA) and pre-interest and tax levels to fall
in 2005/06.

That cautious outlook sent Telstra shares to a low of $4.89,
before recovering slightly to trade at $4.91 at 1133 AEST, down
eight cents.

"The market is tough, very competitive," Mr Trujillo said.

He said the tough conditions were reflected by a drop in
Telstra's AUSTIN or fixed line voice revenue numbers.

"They have declined 1.9 per cent in the first six months of the
year, which has accelerated to a five per cent decline in the
second half.

"That is $275 million down for the full year."

Telstra's revenue for voice calls and fixed line access was $7.71
billion in 2004/05, down 3.4 per cent from the previous year.

But chief financial officer John Stanhope said the telco still
expects to see growth in underlying sales revenue in the current
financial year.

Underlying sales revenue rose 3.7 per cent to $21.50 billion in
the year to June 30, 2005.

Mr Trujillo said the company needs to cut costs and must be more
innovative in delivering new services, such as broadband.

"We need to be more aggressive in terms of competing in the
marketplace," he said.

"Our broadband is too important in the future of this company
for us to give an inch in terms of maximising our position."

He said the company will be taking costs out of the business
over the next three years.

"There is an aggressive look at how much costs we can take out
in the next 12 months, in the next 24 months, in the next 36
months," Mr Trujillo told analysts.

"We are going to be as disciplined as we can about timeframes in
taking out costs and I want to do it in an aggressive fashion."

Telstra announced a final dividend of 14 cents and a special
dividend of six cents.

Mr Stanhope said the 2004/05 result was driven mainly by organic
growth in its broadband, mobile, advertising and directories
business Sensis which helped offset a decline in fixed line product
earnings.

Mr Trujillo will travel to Canberra later today meet with Prime
Minister John Howard.